You’re worried about your home. That’s probably the first thing on your mind when you’re considering bankruptcy. Will you lose it? Can you keep making payments? The short answer is that filing for bankruptcy doesn’t automatically result in foreclosure, but there’s more to understand about how it all works.
How Chapter 7 Affects Your Mortgage
Chapter 7 wipes out unsecured debts like credit cards and medical bills. Your mortgage? That’s different. It’s secured debt, which means it’s tied directly to your property. If you’re current on payments and you want to keep your home, you’ll just keep making those payments throughout bankruptcy and after it’s over. Texas gives homeowners some pretty strong protections through homestead exemptions. These laws let you exempt a significant amount of equity in your primary residence. What does that mean for you? The bankruptcy trustee typically can’t force a sale of your home to pay creditors. The exemption applies to unlimited value for properties on up to 10 acres in urban areas or 100 acres for rural single-person households.
If you’re already behind on mortgage payments, things get more complicated. Filing Chapter 7 when you’re facing foreclosure triggers something called the automatic stay, which temporarily stops the foreclosure process. But this pause won’t last long. Lenders can ask the court to lift the stay, and if you can’t catch up on those missed payments, they’ll likely get permission to proceed with foreclosure.
Chapter 13 And Mortgage Arrears
Chapter 13 works differently, and it’s often better for homeowners who’ve fallen behind. You create a repayment plan that spans three to five years. This lets you catch up on missed mortgage payments gradually while keeping your home. Here’s how your repayment plan typically handles mortgage debt:
- You continue making current mortgage payments as normal outside the plan
- Past-due amounts get folded into your monthly plan payment
- Late fees and some penalties may be reduced or eliminated
- Foreclosure proceedings stop as long as you’re complying with the plan
A Frisco Bankruptcy Lawyer can structure your Chapter 13 plan to make catching up on mortgage debt actually manageable based on what you’re earning and your other obligations.
The Automatic Stay Protection
Both Chapter 7 and Chapter 13 trigger an automatic stay the moment you file. This is powerful legal protection that stops most collection activities, including foreclosure sales. Creditors can’t contact you. They can’t file lawsuits. They can’t continue foreclosure proceedings without getting court permission first. The automatic stay gives you room to breathe and evaluate your options. Are you facing an imminent foreclosure? Filing bankruptcy, even just days before a scheduled sale, can halt everything. Just remember that in Chapter 7 cases, this protection is temporary unless you’re current on payments or can get current quickly.
Reaffirmation Agreements
In Chapter 7 bankruptcy, you might need to sign what’s called a reaffirmation agreement for your mortgage. This legal document says you’re agreeing to remain personally liable for the debt despite the bankruptcy discharge. Most mortgage lenders require this if you want to keep your home. Reaffirmation means the debt survives bankruptcy. If you can’t make payments down the road, the lender can foreclose and potentially come after you for any deficiency balance. Courts look at these agreements carefully to make sure they’re not creating undue hardship for you.
Second Mortgages And Lien Stripping
Chapter 13 bankruptcy sometimes allows something called lien stripping. This only works when your home’s value has dropped below what you owe on the first mortgage. Got a second mortgage or home equity line of credit that’s completely unsecured because you’re underwater on the first? You may be able to eliminate it through your repayment plan. This strategy can dramatically reduce your overall debt burden. It’s not available in every situation, though. You’ve got to meet specific criteria, and it only works in Chapter 13 cases. The process involves filing motions with the bankruptcy court and providing evidence of your home’s current market value. Working with a Frisco Bankruptcy Lawyer ensures that these procedures are followed and all your bases are covered.
Making The Right Choice
Every homeowner’s situation is unique. Some people need the quick debt relief that Chapter 7 provides, while others benefit more from Chapter 13’s structured repayment approach. Working with Leinart Law Firm means you’re getting personalized guidance based on your specific circumstances. Our team can review your mortgage situation, explain your options under Texas law, and help you develop a strategy that protects your home while addressing your overall debt problems. Contact our team today to discuss how bankruptcy might help you keep your home and achieve financial stability.
